Duke Energy’s Chief Defends Abrupt Dismissal of His Predecessor

RALEIGH, N.C. — An accumulation of concerns caused Duke Energy’s board to lose confidence in its chief executive, leading to his ouster just hours after completing a $32 billion merger with Progress Energy, according to testimony Tuesday by the man who replaced him.

James E. Rogers, the current chief executive of Duke, spoke publicly for the first time Tuesday about the boardroom drama last week that led to the surprisingly dismissal of William D. Johnson, the Progress chief, who was to run the company.

“It was everybody’s hope and aspiration that he would be the president and C.E.O.,” Mr. Rogers told North Carolina regulators. “But there were a series of things that happened that led the board to change their opinion.”

The merger, originally struck 18 months ago, created the nation’s largest electric utility with more than seven million customers across six states. The management shake-up has elicited strong emotions in this state, which is more accustomed to college basketball rivalries than a battle between its biggest electric utilities.

The Duke board’s decision to dismiss Mr. Johnson before he even had a chance to run the merged company has caused the company headaches, with its shares declining and the Standard & Poor’s credit rating agency placing its debt on negative credit watch. Several former directors of Progress criticized the board’s maneuver and said they would have voted down the merger had they known Mr. Rogers would remain in charge.

The North Carolina Utilities Commission, which approved the deal based on the prospect that Mr. Johnson would run the combined company, is investigating whether Duke misled regulators. The agency ordered Mr. Rogers to appear before its six commissioners on Tuesday and respond to questions.

Testifying under oath at the packed hearing, Mr. Rogers ticked off several factors that he said had caused Duke’s board to replace Mr. Johnson.

He said that Mr. Johnson had an autocratic leadership style. There were concerns related to his oversight of Progress’s nuclear assets, including its troubled Crystal River plant in Florida. There were also worries about Progress’s flagging financial performance since the merger announcement 18 months before.

“When I boil all of this down, there was a loss of confidence in Bill’s ability to lead,” Mr. Rogers said.

Late Tuesday, Wade Smith, a lawyer representing Mr. Johnson, issued a statement responding to the testimony.

“Bill Johnson has a distinguished record of leadership at Progress Energy and was looking forward to the opportunity to lead the nation’s largest utility,” Mr. Smith said. “The fact that he is held in high regard by his peers in the utility industry and in the North Carolina business community speaks volumes about his leadership and business capabilities.”

Speaking in a contrite, halting tone, the normally confident Mr. Rogers testified for about four hours. The commissioners pressed him on whether Duke’s management had deceived them during earlier hearings by saying that Mr. Johnson, 58, would be running the company.

“I strongly believe this commission has not been misled,” Mr. Rogers said.

A former trial lawyer, Mr. Rogers worded his answers carefully. He said that the board had a contractual obligation to close the merger with Mr. Johnson in charge. But he also emphasized that once it had lost confidence in Mr. Johnson’s ability to lead the company, the board had a fiduciary duty to dismiss him.

Mr. Rogers, 64, said he had no intention of taking over as chief and had been preparing for a less demanding postmerger role as executive chairman. As evidence, he said that he had joined the boards of three nonprofit organizations — the Brookings Institution, the Nature Conservancy and the Aspen Institute.

Nor did Duke’s board engage in a long-term secret plan to replace Mr. Johnson, he said.

He said that he had first learned of the board’s concerns about Mr. Johnson in late May. Then, over a dinner in late June, days before the deal was scheduled to close, two Duke directors told him that they had lost confidence in Mr. Johnson and wanted him to stay on as chief. Mr. Rogers said that only then did he consider taking over.

“I’m in a very delicate place,” he responded. “I’m the C.E.O. of the 30,000 people and have to bring these companies together. And unless you insist upon it, I don’t want to focus on the rearview mirror, I want to focus on the horizon.”

The commissioner moved on.

Mr. Rogers did say that even though Duke was larger than Progress, he and his colleagues viewed the combination as a “merger of equals.” But as the two companies began integrating their operations, “Progress viewed this as a takeover of Duke based on behavior, based on actions, based on treatment of people,” he said. “That was at the heart of the problem.”

Adding to the theater of the testimony was that it took place on Progress’s home turf, Raleigh. The merger has been a blow to Progress employees and the community. Progress is giving up its headquarters, where it could lose as many as 1,000 jobs.

Mr. Rogers reiterated Tuesday that Duke, which is based in Charlotte, would maintain a strong presence in Raleigh.

“We’re going to honor our commitment to keep a substantial number of jobs in this community,” he said.

Mr. Rogers will have perhaps an even more difficult task on Wednesday, when he meets with Progress managers and employees for the first time since their former boss was forced to leave the company.

One Progress employee, Eddie Chavis, was among the North Carolinians who had sent letters to the utilities commission urging it to rescind the merger.

“Will they hold to some of their promises, or will they be broken just as easily?” Mr. Chavis wrote. “The news hit hard around the office; morale is low and everyone is in a funk.”

A version of this article appears in print on 07/11/2012, on page B1 of the NewYork edition with the headline: Duke Energy’s Chief Defends Abrupt Dismissal of His Predecessor.